Before SCHNACKENBERG, HASTINGS and KNOCH, Circuit Judges.
SCHNACKENBERG, Circuit Judge.
Englewood Electrical Supply Company, The Sampson Company, and Maytag-Chicago Company, Illinois corporations, upon whose petition Lurie Bros., Inc., an Illinois corporation, was adjudged bankrupt, have appealed from an order of the district court overruling a creditors' petition to review a referee's order appointing S. Harvey Klein as trustee in bankruptcy. Appellants contend that the referee erred in refusing to approve a choice of Chicago Title and Trust Company, as trustee, and in appointing Klein as trustee.
On May 22, 1958, the bankrupt, a dealer in household furniture and appliances, made a voluntary assignment for the benefit of its creditors. On June 10, 1958, the involuntary petition was filed. An order of adjudication was entered by consent on June 12, 1958, whereupon the court appointed Klein as receiver and referred the case generally to referee Wallace Streeter.
At the first meeting of creditors, an attorney for appellants nominated for trustee Chicago Title and Trust Company and an attorney representing two creditors nominated Klein. A majority of the creditors (both in number and amount of claims) voted for Chicago Title and Trust Company.
With the referee's permission, Klein stated, inter alia, that he had been asked to appoint, as receiver's attorneys, lawyers suggested by the creditors,
"notably by Mr. Hansen representing the First National Bank; that he had learned that the bank had taken, to apply on the indebtedness of the bankrupt, funds of the bankrupt on deposit which might constitute a preference; that he was asked to attend a meeting with respect to the appointment of an attorney for the receiver, in the chambers of the referee, which he refused to do; that he did meet with representatives of creditors, including Mr. Hansen, in the office of Mr. Schapiro, the attorney for R.C.A. Victor, the largest creditor; and was then told that the attorney he had selected to represent him as receiver was unsatisfactory; * * * that in his opinion the First National Bank had received a preference. * * *"
This quotation is taken from appellants' brief.
Whereupon George A. Hansen representing the First National Bank stated that he did not think it necessary to deny Klein's "remarks", but that he did "deny quite a bit of his remarks."
The referee then heard testimony of several witnesses, including Norman R. Kozy, from whose testimony it appeared that there was a meeting of creditors at the First National Bank where Mr. Hansen was asked to contact Chicago Title and Trust Company and two others to ascertain if they would accept appointment as trustee. The meeting was called by Kozy, Hansen and a representative from R.C.A., a creditor. Kozy testified that "we recommended" to Klein that he retain as his attorneys A. L. Schapiro and Seidner & Seidner, whose name came to Kozy for the first time through Hansen.
Kozy also testified that he was "apprised of the fact that the First National Bank had received some seventeen to twenty thousand dollars just prior to the assignment for the benefit of creditors." He also testified as follows:
"I asked the bank by what right the money was taken, and as a matter of fact - I don't recall who gave me the answer, but I am sure that it was somebody from the bank, and it was at this general meeting when all the creditors were present at the time of the assignment when we were apprised of the fact that the bank had taken this money from the account and that it was by right of off-set on the loan, and which I believe is in the agreement that the bank had, and at such time as the questioning was over and this case would be in the hands of a trustee that is the time such an agreement will possibly be looked at. * * * I know when the bankruptcy gets down to the trustee's appointment then it actually is the attorney who will finish out things and as such all claims are checked and this claim of the bank would not only be checked as to its validity but also as to the right of off-set that they used."
After the hearing of evidence, including the foregoing, the referee said:
"It is true that the creditors have a right to select a trustee, and it is also true that that trustee, by whomever he may be nominated, must be neutral as between all the parties to a proceeding, and he must not be interested more in secured creditors or creditors who may have received a preference than he is in the general run of unsecured creditors. I am loath to overrule the wishes of the creditors who have voted here, but I don't believe my conscience would permit me to elect the person that they wish to nominate - or that they have nominated. I have no objection to the Chicago Title & ...